Report: Taxing Imports the Only Way to Get China, Others to Reduce GHGs

Apr 07, 2008

Imposing a carbon tax on Chinese imports may be the only way developed nations will be able to achieve real cuts in global greenhouse gases, finds a new report released from CIBC World Markets of London on March 27.

The research report notes that carbon emissions from developing nations -- in particular China -- have skyrocketed in recent years. Since 2000, total emissions have climbed by more than 6,000 million metric tons with 90 percent of that coming from China and other developing nations. China is now the single largest carbon emitter country in the world, producing more than 21 percent of the global total.

"As OECD [Organization for Economic Co-operation and Development] countries begin to tax their own economies by charging growing fees on CO2 emissions, their tolerance of the carbon practices of its trading partners will diminish rapidly," says Jeff Rubin, chief economist and chief strategist, CIBC World Markets. "Particularly when the painful cuts made by North America, Western Europe, and a handful of other OECD economies are dwarfed by the emission trail spewing from China and the rest of the developing world.

"Other than moral suasion, which is likely to fall on deaf ears, the OECD's only leverage is through trade access. The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."

The report found that efforts to gradually reduce carbon emissions in the United States by just 10 percent through a cap-and-trade system will shave an estimated 0.6 percentage points off real GDP growth annually for the next five years -- with similar costs expected for Europe and other OECD nations.

Rubin notes that these decarbonization efforts will only be effective in reducing greenhouse gases if done in concert with the developing world. Otherwise it simply adds costs to consumers, makes domestic industry less competitive, and will increase overall global emissions as more and more production is shifted to unregulated jurisdictions.

The report is available at http://research.cibcwm.com/economic_public/download/smar08.pdf.